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Note 6 - Leases | 3 Months Ended
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Sep. 30, 2023
Notes to Financial Statements |
Lessee, Leases [Text Block] |
(6) | Leases
We recognize substantially all leases on our balance sheet as a ROU asset and a lease liability. We have operating leases for many of our design centers that expire at various dates through fiscal 2040. We also lease certain tangible assets, including computer equipment and vehicles, with initial lease terms ranging from three to five years. We determine if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the economic benefits from the use of that identified asset. For purposes of measuring our ROU asset and lease liability, we determine our incremental borrowing rate by computing the rate of interest that we would have to pay to (i) borrow on a collateralized basis (ii) over a similar term (iii) at an amount equal to the total lease payments and (iv) in a similar economic environment. The Company's lease terms and discount rates are as follows:
|  | September 30, |
|  | 2023 |  |  | 2022 |
Weighted average remaining lease term (in years) |  |  |  |  |  |  |  |
Operating leases |  |  | 5.8 |  |  |  | 6.0 |
Financing leases |  |  | 2.2 |  |  |  | 2.4 |
Weighted average discount rate |  |  |  |  |  |  |  |
Operating leases |  |  | 5.7 | % |  |  | 4.5 | %
Financing leases |  |  | 3.8 | % |  |  | 3.1 | %
The following table discloses the location and amount of our operating and financing lease costs within our consolidated statements of comprehensive income (in thousands):
|  |  | Three months ended |
|  |  | September 30, |
| Statements of Comprehensive Income Location |  | 2023 |  |  | 2022 |
Operating lease cost(1) | Selling, general and administrative (“SG&A”) expenses |  | $ | 7,925 |  |  | $ | 7,802 |
Financing lease cost |  |  |  |  |  |  |  |  |
Depreciation of property | SG&A expenses |  |  | 124 |  |  |  | 128 |
Interest on lease liabilities | Interest and other financing costs |  |  | 4 |  |  |  | 8 |
Short-term lease cost(2) | SG&A expenses |  |  | 58 |  |  |  | 255 |
Variable lease cost(3) | SG&A expenses |  |  | 2,427 |  |  |  | 2,210 |
Less: Sublease income | SG&A expenses |  |  | (288 | ) |  |  | (293 | )
Total lease expense |  | $ | 10,250 |  |  | $ | 10,110 |
| (1) | Lease expense for operating leases consists of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term.
| (2) | Leases with an initial term of 12 months or less are not recorded on the balance sheet and instead expensed on a straight-line basis over the lease term.
| (3) | Variable lease payments are generally expensed as incurred, where applicable, and include certain index-based changes in rent, certain non-lease components, such as maintenance, real estate taxes, insurance and other services provided by the lessor, and other charges included in the lease. In addition, certain of our equipment lease agreements include variable lease payments, which are based on the usage of the underlying asset. The variable portion of payments are not included in the initial measurement of the asset or lease liability due to uncertainty of the payment amount and are recorded as expense in the period incurred.
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable leases with terms of more than one year to the total lease liabilities recognized on the consolidated balance sheets as of September 30, 2023 (in thousands):
Fiscal Year |  | Operating Leases |  |  | Financing Leases |
2024 (remaining nine months) |  | $ | 24,954 |  |  | $ | 256 |
2025 |  |  | 31,161 |  |  |  | 80 |
2026 |  |  | 26,980 |  |  |  | 72 |
2027 |  |  | 20,524 |  |  |  | 66 |
2028 |  |  | 17,897 |  |  |  | - |
Thereafter |  |  | 33,955 |  |  |  | - |
Total undiscounted future minimum lease payments |  |  | 155,471 |  |  |  | 474 |
Less: imputed interest |  |  | (23,839 | ) |  |  | (24 | )
Total present value of lease obligations(1) |  | $ | 131,632 |  |  | $ | 450 |
(1) | There were no future commitments under short-term operating lease agreements as of September 30, 2023.
As of September 30, 2023, we did not have any operating or finance leases that have not yet commenced. Other supplemental information for our leases is as follows (in thousands):
|  | Three months ended September 30, |
|  | 2023 |  |  | 2022 |
Cash paid for amounts included in the measurement of lease liabilities |  |  |  |  |  |  |  |
Operating cash flows from operating leases |  | $ | 8,200 |  |  | $ | 8,230 |
Operating cash flows from financing leases |  | $ | 131 |  |  | $ | 133 |
Operating lease assets obtained in exchange for operating lease liabilities |  | $ | 7,680 |  |  | $ | 5,510 |
There were no non-cash financing lease obligations obtained in exchange for new financing lease assets during the three months ended September 30, 2023 or 2022. Sale-leaseback transaction. On August 1, 2022, we completed a sale-leaseback transaction with an independent third party for the land, building and related fixed assets of a retail design center. The design center was leased back to Ethan Allen via a multi-year operating lease agreement. As part of the transaction, we received net proceeds of $8.1 million, which resulted in a pre-tax gain of $1.8 million recorded within Restructuring and other charges, net of gains and $5.2 million deferred as a liability to be amortized to Restructuring and other charges, net of gains over the term of the related lease. For the three months ended September 30, 2023, we amortized an additional $0.7 million of this deferred liability as a gain within Restructuring and other charges, net of gains. As of September 30, 2023, the deferred liability balance was $2.2 million recorded in Other current liabilities on our consolidated balance sheet.

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